In the
development of real property, the availability of money to secure
construction resources becomes an important factor for success. The
construction loan plays a central role in providing funds to erect a
building on real property, but a lender faces numerous exposures that
might result in a loss. In evaluating a project to determine its
viability and to uncover any exposure it might present, a lender will
conduct an extensive underwriting review process and will use mitigation
techniques through the construction loan agreement and disbursement
requirements to reduce the perceived risks to an acceptable business
level, for those developments deemed worthy. With the recent transition
into more sustainable construction practices, many lenders will fail to
recognize that the construction of a green building differs from a
traditional one. The meaningful distinctions between these different
methods merit an evaluation of their own in order to properly assess and
manage the risk associated with a construction loan for a green
building. Accordingly, this article seeks to address the unique issues
associated with a construction loan for a green building and provide
solutions that can mitigate the exposures presented to acceptable
levels.